Sunday, October 18, 2009

Born Again Buyers

Lately Jim the Realtor has been documenting the current "frenzy" of bidding and buying activity out there.

From what I can see, there are several key reasons for this "buying frenzy" (despite buyers likely being aware they are catching a falling knife), including:

1) Incredibly low inventory (in Long Beach, it's down 36% since last year!);
2) Government handing out free ponies with the First-Time Home Buyer tax credit (with a very loose definition of "first-time") which may expire in November;
3) Incredibly low (and reckless) down-payment requirements from the FHA;
4) People, like me, who have been priced out of the market for nearly a decade now (unless we took out wonky interest-only Option ARM suicide loans to buy properties at 6-10X income) and are simply tired of waiting and putting their lives and goals on hold (and I don't blame them); and
5) Prices seem pretty attractive compared to peak "values."

And I'm sure many of you have been asking yourself: Dang, with a 12.2% unemployment rate and stricter lending requirements, just how many new, qualified buyers can possibly be left?

Well, there was another factor that I hadn't really thought about. I heard on the radio tonight that a short sale only remains on your credit rating for a year-and-a-half.


That's nothing. And it means all the people who walked away Scot-free from their obligations when the shit hit the fan in 2007 and 2008 are suddenly born-again qualified buyers! So, with the FHA(IL) providing an avenue for the credit-challenged, low down-payment requirements (which can be satisfied by the FTHB tax credit), and incredibly loose definitions of a "qualified" buyer...the answer to the question of how many buyers are still out there is: A lot more than you can ever imagine.


  1. Incredible, only 18 months to perfect credit.... I guess getting the $850k loan I could never pay off back on 2005 really was the smart choice. As for inventory there is nothing out there. I am not looking for a palatial mansion, but a nice home at a decent price is still a rarity.

    I thought 2010 would finally be the year to buy. Now 2012 might be the right year. I am about to pack it in and move to Austin, TX.

    El bee thanks for the reporting and sense of humor. I need in this environment.

  2. Man, I love Austin. Great city.

    Nobody knows what the future holds, but I still have a pretty bleak outlook. Believe me, I want to switch to optimism, but the facts don't lie and I'm not thoroughly impressed by 10,000 DOW.

    I've been wondering if current buyers are fully aware that things are going to get worse, yet are buying in an effort to lock in a certain lifestyle that, frankly, won't be around in the future.

    Think about it, they can lock in a low interest rate (it will probably be decades before we see these rates again) on a steady, 30-year mortgage, and when rampant inflation comes home to roost, the payment on that 4,000 square foot McMansion (that they're not building anymore due to wage stagnation and residents having less to spend on housing due to increased taxes) will be locked in.

    Or maybe these buyers have learned the single most important lesson from the Great Housing Bubble: There is absolutely no penalty for walking away.

    "We'll take advantage of the free government money, lock in a low rate, and if prices crash further or we lose our jobs--fuck it--we'll just bounce and lose nothing. The FHA didn't make us put anything down and whatever we lose in monthly payments can be considered a premium for this incredible put option."

  3. Agreed with all the above. IMHO this is merely an aftershock of the great housing bubble. As CR put it, in a true bottom of any asset cycle, including housing, people are so disgusted by it noone wants anything to do with it. We are nowhere near the true bottom yet. The way the big players are rigging the field, they are kicking the can down the road even further, and guaranteeing an even longer time till the true bottom. Real estate will be a dead end in the LBC until at least 2015, even if it becomes affordable before then.

  4. I started googling short sales, because I just didn't believe that the 18 month period could possibly be true. I came across this:

    Are you kidding me?! I've seen some people refuse to take responsibility, but man...

    Four years ago I was moving around a lot and a credit card I never use got charged with some stupid annual fee. The bill never caught up to me, so Amex charged it off to collections. My credit took a 150 point dive, and the notation is STILL on my report. The default amount? $200. Obviously, the lesson here is that next time I should default for $200K.

    We should all be picketing Washington...

  5. My wife is born and raised in L.A, I moved here about 6 years ago, we have friends here, but if this frickin' bullshit means that after all these years of saving and living within our means we still can't have a modest little house (somewhere that's not scorching hot or crime ridden), then that's it. We could make a large downpayment but we're not blowing it on some tiny 700k sweatbox.

    I do wonder if it would be better to just move. Austin or Houston, but I hate the heat. Colorado perhaps. Carolina.

    It's a tough choice as we'd be away from friends and family, but I'm just so tired of the California housing bullshit (I lived in SF prior to moving to LA, so have experienced that wonderful market too).

    I thought that finally, finally, some semblance of sanity would return, but now I see that the same old ridiculous nonsense is going to be restarted to prop up this house of illusion.


  6. Jason,

    Believe me, I feel your pain. Here's the thing about nearby friends keeping people from moving: If you move to a place with a lower cost of living and are spending a smaller percentage of your monthly take-home on housing and rapetastic taxes, then you'll have more money for plane tickets to visit them--and a big ass house for them to stay in when they visit you.

    Plus, once you hit your early 30s, most of your friends disappear to Marriageville or Rugrat City--how often are you REALLY seeing your pals anyway?

    I need to stay in California for numerous reasons, but if The Lady's (stable) job was transferrable and I could work out some family things, I wouldn't hesitate to move to Charleston, SC or any number of cities in North Carolina. I know some people that are moving to Colorado too.

    There are definitely things I would miss about Cali, and jobs outside of California pay a lot less (although it goes further), but the amazing weather can only take you so far.

    However, keep in mind that no place is perfect. It’s like choosing a ride: You want a sportscar? The tradeoff is no useable trunk and bad mileage. You want luxury? The tradeoff is isolated handling and big monthly payments. You want great mileage and low maintenance? You’re going to give up safety and “cool” to achieve it. You want an exotic? Well, forget about a back seat and have fun paying insane insurance to never drive it.

    You gotta find what you prioritize and start taking some trips. Hell, in your travels you might find out that SoCal has the right combination of things you prioritize most, and realize that sometimes that’s worth paying a premium and dealing with absurdities on amphetamines.

    [That was my attempt at ending on a positive note. How’d I do?]

  7. Thanks, El Bee. Sound advise. Yep it's a matter of priorities. And having a mortgage I can pay off in 15 years, not 30 or 40, is one of them. Maybe we'll stay here, but a large part of me would like to try somewhere else for a while, just to see what it's like.

  8. Hi. I don't think this is the right time for optimism even though I'd love to be optimistic, too. It seems to me that Mr. Obama helps the banks but forgot that he should help the people first. If the government continues spending such amounts of money on reforms such as first time homebuyer credit, I don't think there will be any recovery soon. On contrary, the Fed will ruin the economy completely.
    All the best,